Green (Liquidator of Stealth Construction Ltd) v Ireland

A preference may arise when a company voluntarily grants security which improves a creditor’s position in an insolvent liquidation. The relevant decision is the decision to give the preference, rather than necessarily the date on which the security is executed. When that decision is made is a question of fact. An earlier contractual intention to grant security is neither necessary nor automatically decisive. Where the creditor is connected with the company, the statutory presumption of a desire to improve the creditor’s position must be rebutted by evidence about the company’s decision-makers. The creditor’s innocence or belief that security already existed does not prevent a preference.

The liquidator sought relief under section 239 of the Insolvency Act 1986 in respect of a second legal charge granted by Stealth Construction Ltd to Joanna Elizabeth Ireland. The charge secured loans totalling £300,000 used to fund the purchase of a property.

The parties accepted that Ireland was connected with the company because she was the sister of a director, that the company was insolvent from October 2008, and that the relevant period extended to the charge granted in December 2008. The issues were whether an earlier agreement or the application of the loans had already given Ireland enforceable security rights, and when the company decided to grant the charge.

1. The claim succeeded. The court ordered relief under section 239 of the Insolvency Act 1986.

2. The oral agreement made in October 2007 was a contract concerning the disposition of an interest in land. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 therefore applied. The emails were signed for statutory purposes, but they did not themselves evidence a binding contract and omitted material agreed terms, including the total loan, repayment date and interest terms. The unsigned letter was also insufficient. The distinction between land-contract terms and collateral terms identified in North Eastern Properties Ltd v Coleman [2010] 1 WLR 2715 did not assist, because the omitted terms formed part of the land contract.

3. Ireland acquired no enforceable right to security and no equitable interest in the property. Holroyd v Marshall (1862) HLC 191 concerned rights arising from a specifically enforceable contract and did not overcome the statutory formalities.

4. The December 2008 charge put Ireland in a better position in an insolvent liquidation by making her a secured rather than unsecured creditor. It therefore satisfied section 239(4)(b).

5. The relevant decision was the decision to grant the charge. The date of that decision is a question of fact. An existing contractual obligation is neither necessary nor sufficient. The court considered Re MC Bacon Ltd [1990] BCC 78, Re Fairway Magazines Ltd [1992] BCC 924 and Wills v Corfe Joinery Ltd [1997] BCC 511 in applying that approach.

6. On the evidence, the decision was made in about November 2008, after Ireland raised the absence of security and when the company was insolvent. Ireland did not rebut the presumption under section 239(6) that the company was influenced by a desire to improve her position.

7. The statutory focus is on the conduct and state of mind of the company’s directors or other decision-makers, not on the creditor’s conduct or state of mind. Ireland’s innocence and belief that she already had security did not prevent the transaction from being a preference.